Deal would end some mortgage practice inquiries

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NEW YORK — JPMorgan Chase and the Justice Department have reached a tentative $13 billion settlement over the bank’s questionable mortgage practices leading up to the financial crisis, a record penalty that would cap weeks of heated negotiating and underscore the extent of the bank’s legal woes, people briefed on the talks said Saturday.

To resolve an array of federal and state investigations into the bank’s sale of troubled mortgage securities to investors, the bank would be expected to pay about $9 billion in fines, according to one of the people.

JPMorgan, the nation’s largest bank, will also very likely provide about $4 billion in relief for struggling homeowners, another person briefed on the talks said.

The total $13 billion penalty would surpass other major Wall Street settlements. HSBC, for example, agreed to a $1.9 billion penalty last year over money laundering accusations.

The penalties also eclipse what the bank previously offered to pay. Until now, the bank was offering about $11 billion in total. And it refused to increase its offer unless the Justice Department dropped a parallel criminal investigation into the bank’s sale of troubled mortgage securities to investors.

But the bank, one of the people briefed on the talks said, tentatively backed down from that demand.

The preliminary deal materialized late Friday after Attorney General Eric H. Holder Jr. spoke on the phone to the bank’s top executives, including the chief executive, Jamie Dimon, and the general counsel, Stephen M. Cutler, one person said.

Holder told Dimon that he could not shut down the criminal investigation, reiterating an argument he made when the two met last month in Washington. The associate attorney general, Tony West, was also at that meeting and on the phone call Friday night.

The people briefed on the matter cautioned that the deal could still fall apart as the final details were reached. They spoke on the condition of anonymity because they were not authorized to discuss private negotiations.

One significant obstacle stands in the way of a deal. West and Cutler continue to negotiate over a statement of facts in the case, one of the people briefed on the talks said. Those negotiations could hit a snag if JPMorgan seeks to limit the conduct that the Justice Department wants to include in the settlement deal.

A spokesman for JPMorgan declined to comment. A Justice Department spokesman also declined to comment.

The settlement, if approved, would involve several lingering government investigations into JPMorgan’s sale of securities backed by subprime and other risky mortgages. The cases, which focus on securities the bank sold from 2005 to 2007, raised questions about whether JPMorgan had failed to fully warn investors about the risks of the deals.

One of the largest pieces of the $13 billion deal could come from a settlement with the Federal Housing Finance Agency. The agency sued JPMorgan over loans it had sold to the mortgage-finance companies Fannie Mae and Freddie Mac.

Many of the cases involve mortgages that JPMorgan itself did not sell. Rather, the bank inherited the legal liabilities when it bought Bear Stearns and Washington Mutual at the height of the financial crisis.

The $13 billion settlement, for example, would resolve a case related to Bear Stearns, a lawsuit that has pitted the New York attorney general against JPMorgan, two people briefed on the matter said.

Last October, the New York attorney general sued JPMorgan, saying Bear Stearns and its lending unit, EMC Mortgage, had duped investors who bought mortgage securities assembled by the companies from 2005 through 2007. Through a deal backstopped by the government, JPMorgan bought Bear Stearns in 2008.

Dimon has called the lawsuit unfair, arguing that JPMorgan should not be penalized for buying Bear Stearns in 2008.